- Review our 6 tips for hardship based loans and alternative loan products.
- A cash-out refinance can be a good option, if you own a home with equity, even if a hardship has hurt your credit.
- Consider help from a debt relief provider as an alternative to a hardship loan.
I need to apply for a personal loan due to financial hardship. This is the first time I have been in this position. What advice can you give about getting a hardship loan to help solve my money headaches?
I need to apply for a personal loan due to financial hardship. Where can I go for a hardship based loan and what advice do you have?
Thanks for your question on hardship loans and getting financial help when you are financially struggling.
You didn't specify the cause of your hardship, but some common reasons people struggle financially are: loss of income due to job loss; medical expenses not covered by insurance; divorce; and disability, to name but a few. Any of these can result in a drop in cash flow and the need to raise some money in order to meet all your debt obligations.
Given your situation and goals, it makes good sense to understand the types of hardship loans available and whether you can qualify for one. Depending on the specific facts of your financial situation, there may be a few alternatives to a traditional personal loan that could assist you in resolving your debt.
If you can't get a hardship loan, or the only one you can get has very unattractive terms, then looking for other debt relief solutions that will ease your financial burdens is your best course.
Do You Have a Strategic Plan in Place?
Speak with a Money Coach to put a big-picture plan in place. For a free consultation, call 800-998-7497. Whether you find a loan or not, you will benefit from making a financial plan that addresses your spending, saving, debt obligations, and long-term goals.
Six Hardship-based Loan Suggestions
Look into the following hardship loan options, comparing any fees that come with the loan, the interest rate, and the affordability of the monthly payment.
If you own a home with equity, start by seeing if you can qualify for a refinance loan. Refinancing could offer you the lowest rates of any loan option, due to the security of your home that you use as collateral. There are cash-out loans that accept borrowers with FICO scores that are lower than the FICO scores required for unsecured loans.
Consider a loan from Prosper.com, which is a peer-to-peer lending and investing company. Current rates from Prosper range from 6.95% APR (for borrowers with excellent credit) to 35.99% APR, for higher-risk borrowers, as of September 2019. The APRs include origination fees of 2.41% to 5% of the loan amount. Prosper offers its lowest rates to borrowers with excellent credit. Higher risk borrowers are going to get higher interest rate loans.
Lending Club is another large peer-to-peer lender. Unsecured personal loans from Lending Club range from 6.95% APR to 35.89%, as of September 2019. The APRs factor in an origination fee of 1% to 6% of your loan amount.
A 'No' Demands an Explanation
If you are turned down for a loan, ask the lender the specific reason(s) your application was denied. Also ask them what steps you would need to take in order to qualify.
Borrowing from your retirement account has serious downsides. You are reducing your retirement holdings. If you don't pay it back as agreed or if you leave your job before it is repaid, you will be hit with penalties and taxes. That being said, depending on your need for money, the benefits could outweigh the costs.
A big pro is that you are not judged on creditworthiness or debt-to-income ratio to get the loan.
Not all 401(k) plans allow account holders to borrow against their holdings. Ask your 401(k) plan administrator if loans are permitted under your plan.
Online Hardship Loan Lenders
Check out loans from other online lenders that make unsecured loans, such as loans available from FreedomPlus. FreedomPlus looks at more than credit scores. Its underwriting considers other data, giving borrowers a chance to access lower rates due to factors outside of credit score. For example, if you take out a debt consolidation loan and FreedomPlus pays off your creditors directly, using your loan proceeds, you could get a lower rate. Or, you might qualify for lower rates if you have over $40,000 in retirement accounts.
As of September 2019, FreedomPlus loan terms range from two to five years, with a maximum loan amount of $40,000 and a minimum loan amount of $7,500. Interest rates range from 5.99% APR to 29.99% APR. The APRs include an origination fee of 0% to 5%.
No Advance Fees
Never pay a fee in advance for a loan, especially if it is from a "We make loans to anyone; bad credit is not a problem!" lender. Scammers will take a fee from you and not give you a loan.
A payday loan may be the only hardship loan for which you can qualify. Payday loans have very high fees. If you don't pay it back as agreed, can be a debt trap. Payday loans are only good as a very short-term hardship loan of last resort, when you are certain you can pay it back right away.
I also recommend that if you are seriously considering a payday loan, you read the Federal Trade Commission page with consumer information about payday loans.
Know Your State's Laws
Before you take out a payday loan, be sure you know the payday loan laws that apply in your state, such as whether a online payday loans are legal in your state.
Loan Qualifying Tips
In order to qualify for a loan, you have to demonstrate that you can afford to pay back the loan. Lenders require that your debt-to-income ratio shows that you can afford to make the monthly loan payment.
You also have to meet credit requirements, both for credit score and credit history. The best rates on loans are offered to borrowers with excellent credit scores and if your score is below the minimum credit score a lender requires, your application will be turned down.
Get Your Free Credit Report, when Entitled to Receive One
If a lender turns you down due to something it finds on your credit report, you are entitled to a free copy of your credit report and a letter that explains why you were turned down.
Even if you have a strong credit score, you could be turned down due to your credit history. For example, the presence of a collections account could prevent you from qualifying from a loan, until you can prove the account is paid off. Similarly, you may have to wait X number of years after a bankruptcy discharges, even if your score bounces back more quickly.
Hardship Loan Alternatives
Hardship loans are not always the best solution, even if you qualify for one. If you are struggling with debt, check out all your pay off debt options, including the services of different professional debt relief providers.
I hope this information helps you Find. Learn & Save.